Buying spree before Malaysia's GST kicks in

In order to lessen the impact on lower-income groups, the authorities have had to place thousands of items on either one of two lists: exempt (this applies to almost all fresh food) and zero-rated (such as 4,215 medicines).
In order to lessen the impact on lower-income groups, the authorities have had to place thousands of items on either one of two lists: exempt (this applies to almost all fresh food) and zero-rated (such as 4,215 medicines).PHOTO: AGENCE FRANCE-PRESSE

Malaysia rolls out system today

Eager to beat the introduction of the Goods and Services Tax (GST) today, Ms Diana Wan ran into a crowded neighbourhood supermarket, only to find that early birds had emptied the shelves of many daily necessities.

"Luckily I've already bought about RM1,000 (S$370) of canned food, diapers and detergent. I'll say I saved at least RM60," said the 33-year-old part-time property agent.

Long queues at Klang Valley department stores and supermarkets have been a common sight since last weekend, as consumers rushed to stockpile non-perishables, including beauty products. The sometimes chaotic scenes reflect the confusion over Malaysia's new consumption tax.

Some household items such as diapers and sanitary pads are supposed to cost about 2 per cent less as they move from the previous Sales and Service Tax (SST) regime to the GST.

But this has not stopped people like Ms Wan from grabbing what they can. "I don't trust that prices will ever go down. Even people that aren't supposed to charge GST increased prices before today," she said.

Businesses, too, are gripped by trepidation over the GST, despite having had a year to prepare since Parliament approved the tax.

Part of the problem has to do with the long lists of exempted and zero- rated items. While both categories do not attract GST, the latter lets the seller claim "input credits" along the supply chain from the government.

This has given rise to "the most unique GST system in the world", said Small-Medium Enterprises Association president Teh Kee Sin.

"We are worried and a bit panicky about the confusion we may see over items that might be exempted or zero- rated... many sundry shops themselves don't know what is going to be taxed," he told The Straits Times.

Many are also unable to come to grips with the wide range of variables in predicting pricing from today. Apart from whether an item will be hit by the 6 per cent GST, changes in price will also depend on the previous rate under the SST, as well as whether inputs from raw materials to services used in producing the final product were subject to GST, among others.

The government's move to implement GST after a nearly two-decade delay is aimed at making taxes fairer and more transparent to counter tax evasion. It is estimated that only 1.7 million Malaysians pay income tax out of a workforce of 12 million.

In order to lessen the impact on lower-income groups and the less fortunate, the authorities have had to place thousands of items on either one of two lists: exempt (this applies to almost all fresh food) and zero-rated (such as 4,215 medicines).

However, this has created a nightmare situation for businesses in terms of predicting their cashflow and keeping in line with regulations. Mr Teh explained that businesses must file their GST reports monthly if their annual turnover is over RM5 million, or quarterly if it is under RM5 million. Any error is subject to a fine.

"It would be more efficient to impose a blanket GST, and then subsidise with cashback for particular demographics or industries," he said.

Critics say the government is just as unprepared as the market.

Customs chief Khazali Ahmad on Monday said businesses are barred from increasing profit margins for the first 15 months after GST, but this has been ridiculed by the opposition as impossible to enforce and illegal.

Some businesses have been forced to close for good. These include Chinese medicine shops, which are unable to itemise and submit their rare products for categorising under GST.

shannont@sph.com.sg